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Are you sitting comfortably?To celebrate Day 4 of "Auction Week", we are about to dive head first into the murky waters of auction psychology in an attempt to understand, and offer a novice overview, to the manner in which this method of property disposal governs our behaviour.On this occasion, there are two ways to consume this content- by watching a video and/or reading a more in-depth guest article by Bamboo Auctions. Enjoy!Guest article by Bamboo AuctionsAuctions are by design, very simple transactional devices, yet stimulate a complex set of emotions that trigger our actions & reactions. They tap into our very human nature, which can, at times, drive unpredictable, irrational & uncharacteristic behaviour… Yes, we’ve all experienced it!Auctions tap into this, feeding off the adrenaline & urgency, to create a certain allure & tension that can make us act on impulse and follow our gut. Who doesn’t like grabbing a bargain...and beating the competition whilst you’re at it?In terms of general mental mechanics, many auctioneers believe that there are in fact, two ways of bidding:1. With a clear strategy in place, for the more seasoned & regular auction goers, that are unwavering in their dedication to sticking to budget criteria and not going above their means.
2. With pure emotion, as indicated above, where individuals are caught up in the moment and must obtain the desired object (in this case property) at all costs, reacting to other factors & stimuli in the process.Two extremes it appears which can ultimately drive the same outcome - a property purchase, but at what price and how did we arrive at that point?!From doing a little reading around this topic, it appears that there have been a vast array of theories and explanations offered to provide clarity to the mechanisms that formulate the auction and the feverish elements that accompany the process, namely the endowment and opponent effects.Before the auction begins buyers will go on a journey of sorts, when reviewing auction catalogues, deciding on their preferred property, prompting aesthetic pleasure, associating value and visualising themselves in the property itself. This is the ‘Endowment Effect’ - owning the asset before it is yours. All of this will inevitably leave its mark and find its way into our conscious thought as the auction begins and bidding ensues. One question to ask here, is whether we would expect to see a different emotional response between men & women, which is subsequently reflected in bidding behaviour? Just a thought.Then there is the manner of the ‘Game Scenario’ – where buyers are presented with some information and must obtain the rest (guide price vs. reserve - see here for previous blog/survey) whilst responding to other competitive bidders, their opponents in the quest for their desired property. This is an argument put forward by Nobel Laureate John Nash when commenting on game theory, wherein parallels can be drawn with property auctions.It is inevitable that the majority of bidders (whether in the ballroom or online) will withhold from bidding for some time, in an attempt to keep the price down, all bidders will want to pay the lowest possible price. However, some may wish to disrupt this strategy and bid generously from the onset. Others will just go on instinct & impulse alone – this all contributes to the game theory!Regardless of employed strategy, when the bidding starts, the competitive element of the auction will be unshackled, leaving rational & irrational bidding activity to sit side by side. Once we’re involved in an auction we’re not just paying to own the sale item, we’re effectively paying to beat others who are bidding and prevent them from having it. This irrational way of thinking, powered by pure emotion is what causes some individuals to effectively start bidding against themselves. This all drives the ‘must win’ mentality seen often on the auction battle ground.On top of this, auctions are time pressured, creating further excitement whether you are in the room or not. In the case of online auctions, the timer can be seen constantly ticking down in the background, adding more urgency as it barks at us to place a bid on an item that we value most highly. There is a social proof in auctions that we all tend to take the lead from others and demonstrate a tendency to gravitate toward, and bid for, auction listings with one or more existing bids. This is commonly known as ‘Herd Behaviour Bias’ and can cause buyers to ignore potentially more attractive listings if a bid has not yet been placed on them. This creates a ‘Coveted vs Overlooked’ dilemma where some listings will attract multiple bidders and become ‘coveted’, “the centre of bidding attention, while other equivalent or even superior listings are ‘overlooked’, receiving no bids at all.” (Dholakia, U.M. & Soltysinski, K. Marketing Letters (2001) 12: 225. doi:10.1023/A:1011164710951).In the case of the online auction specifically, we have to address the impact on consumer behaviour given that the process is taking place in the virtual world. There is the element of anonymity, increased accessibility, extended time and lack of intimidation felt by some when in the ballroom, that all purports to enable more calculated decision making. There are clear decision dynamics at play here with buyers searching for value signals within the auction framework, whether in a room or online, (listed, marketed, viewings, guide price, first bid, how many bidders, reserve met, one hour to go, etc.) that in turn dictates consumer psychology and subsequent behaviour. Does then an online auction empower the consumer to make more informed decisions on high value assets such as property based on instinct, intellect, information and time available? Again, just a thought.
Just sticking with the online model for now, there is a fundamental difference in that there is no auctioneer on the rostrum. No physical conductor in the room, choreographing the movement of bids, allowing individuals to battle to their own tune, rhythm & speed. Plus point or negative notion?! You could argue that there is more weight behind each bid, as it is borne straight from the interested party without prompt or persuasion, limited contact, allowing more time between bids - some of the essential ingredients that makes this method of disposal so intriguing.
Much like in the room, there has to be heightened interest created courtesy of the asset, priced correctly to whet the appetite and stimulate bidding activity. This is where the expertise of the auctioneer is paramount, required to price the property correctly, leaving the auction to take care of itself due to the aforementioned behavioural traits examined above. Online auctions can combine the benefits available via virtual commerce arenas (save time and achieve a fair price) with the watchful eye cast by the auction house, with regard to correct pricing etc. The online arena allows for the marketplace to remain open for longer, inviting larger numbers of buyers into the process to bid, buy, play & compete!
Bamboo Auctions believe that auctions are an extremely efficient way to dispose of property - quick, easy & transparent. Make them available online and you offer further benefits via increased accessibility & flexibility for buyer & seller alike.For that reason alone, more education should be made available to illustrate these benefits and provide an understanding on how the process works. Combine better education with an appreciation of the psychological mechanics that governs this transactional method and they would expect to see an increased inclination towards considering auctions an appetising, worthy & sensible choice.
Over the coming weeks, Bamboo Auctions will be looking further at the virtual marketplace and associated consumer mentality. They will pay some careful attention to the bidding propensity aligned to online auctions and how they can be seen to improve ‘shopping’ productivity and buyer efficiency. Bamboo will also be reporting on the perceived usefulness of technology within the auction industry and the apparent ease of use with the online auction tool._____________________________________Don’t forget, Bamboo Auction are offering all PTers the chance to sell their property at auction with no entry fees — get in touch with them here.DON'T MISS - 6 ways of selling an investment propertyUP NEXT - Finance deadlines when buying at auctionSEE ALSO - On-line auction - a buyer's perspectiveRESOURCE - Auction Week 2016: Ask the Auctioneer!NOW WATCH:
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**